Donald Trump is threatening to use “economic force” to make Canada the 51st American state. While his comments may be reckless, they are in part due to Canada’s over-reliance on the United States market in terms of trade.
President-elect Donald Trump speaks during a news conference at Mar-a-Lago on Jan. 7, 2025, in Palm Beach, Fla.
(AP Photo/Evan Vucci)
The benefits of international trade are undoubtedly positive. It’s well-established that when countries can produce a product or service more cheaply than others, giving them what’s known as a “comparative advantage,” all other nations engaged will gain from that trade.
There are additional gains that come from economies of scale as companies get access to much larger markets than are available domestically. These include improvements in efficiency that arise through enhanced market competition, resulting in lower costs of production and reduced prices for consumers, and increases in the variety of goods and services available.
Canada has outgrown many of its protectionist roots and is now a trading nation. Despite having only 0.5 per cent of the world’s population, Canada has 2.2 per cent of the total of world trade. Exports of goods support one out of every six Canadian jobs.
While the Canada-United States-Mexico Agreement (CUSMA) and its predecessor, the North American Free Trade Agreement (NAFTA), garner most of the headlines, Canada has a total of 15 free-trade agreements covering 61 per cent of world GDP, providing Canadian companies with access to 1.5 billion consumers worldwide.
And Canada is seeking even more free-trade agreements, given their demonstrated benefits.
Made-in-Canada solution?
But the key challenge Canadian policymakers face is an over-reliance on the U.S. as Canada’s primary market, with 75 per cent of all Canadian exports headed south.
One of the first lessons in business is not to put “all of your eggs in one basket.” Canada clearly needs to diversify its trading partners, which is no easy feat. But there is a “made-in-Canada” solution to potential clouds on the international trade horizon.
The U.S. makes for a natural trading partner, given its large market and close proximity to Canada. The two countries share similar cultural norms and legal systems, and the same time zones and existing infrastructure, including ports, railways and bridges.
There’s also new infrastructure planned, including the Gordie Howe International Bridge connecting Windsor and Detroit that will facilitate cross-border trade when it opens later this year.
A freighter makes its way down the Detroit River past continuing construction on the Canadian span of the Gordie Howe International Bridge in December 2023 between Detroit and Windsor. In July 2024, workers linked the two sides of the bridge.
(Daniel Mears/Detroit News via AP)
But the over-reliance of Canadian exports to the U.S. exposes Canada to significant risks that can result from unilateral American trade policies.
Canada’s preferential access to the U.S. market can no longer be assured,